A taxi sign is seen in Rome on January 23. Italian Prime Minister Mario Monti takes on the cabbies to reboot the country's lagging economy.

Alessandro Bianchi/Reuters

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Turin, Italy

Italian Prime Minister Mario Monti was brought into office to tackle the country’s immense debt and reform the lagging Italian economy. But resistance to his liberalization proposals shows just how difficult it may be for him to change entrenched economic practices.

Mr. Monti, who was appointed last year after former prime minister Silvio Berlusconi’s resignation, immediately set out to cut spending and chip away at Italy’s debt, which was 120.1 percent of GDP in 2011. Now he has shifted his focus to growth, presenting his “Grow Italy” scheme for opening up the highly regulated service sector.

The taxi industry’s pushback is emblematic of larger problems. Monti aims to make it more competitive by easing the limits on the number of taxi licenses, which is expected to force city councils to lower service rates. His plan also addresses other professions with high barriers to entry such as lawyers, notaries, gas stations, pharmacies, and newsstands. The senate already removed some of his proposals during the amendment process.

“The liberalization decree, which covers a wide range of areas, also hit sectors that are less relevant to economic growth, but are emblematic of an old problem that the Italian economy has: the unearned income,” said Marcello Messori, professor of economics at the University of Rome 'Tor Vergata.' “It indicates that, for the first [time] in a long time, there is an intention to tackle this problem.”

The Monti administration says there are too many taxis, evident in the long lines of white cars on city streets that wait an average of 90 minutes before getting a customer – because rates are too high. If the number of licenses was increased, there would be more competition and fares would have to drop, increasing demand, the administration argues.

The senate approved a watered-down version of the proposal last week and it is now being discussed in the lower house. Major political parties, including Mr. Berlusconi’s center-right party, contested the effort by introducing more than 1,700 amendments. The economic measures are popular with the public, with 58 percent of Italians supporting them, according to a survey published by newspaper Corriere della Sera. But within the tightly regulated taxi industry the reduction of barriers to entry is considered catastrophic.

Reforms 'would ruin us'

Each city council sets the number of local taxi licenses, which only individuals can own. National laws stipulate that licenses must be obtained through either a public auction or from a cab driver willing to transfer his license. The price ranges from €50,000 ($62,280) in small cities like Bari to €300,000 ($403,650) in Florence.

Giovanni Maggiolo, president of the national UN.I.CA Taxi Filt/CGIL union and a cab driver in Milan, said that while city councils set the original price of a license, also known as a medallion, supply and demand determine its resale value.

To buy a license, many drivers go into debt, often mortgaging their home or their parents’ property, explains Pier Giovanni Bestente, president of the Radio Taxi 5370 cooperative, which represents 750 of Turin’s 1,600 cab drivers.

“Adding new taxi licenses would ruin us,” Mr. Bestente says. “It would further reduce the low amount of work we have while depreciating the value of the license.”

“Drivers don’t recover their initial investment. They are basically investing money to have a job,” he explains. The resale value of the license is considered drivers’ severance pay. In a good month, they make up to €1,300 ($1,750), working up to 12 hours a day, according to taxi unions.

The industry opposes allowing a national body to set license numbers because “each city is a different case,” Bestente says. In more than 100 cities, the number of taxis is lower today than 30 years ago, and licenses remain unused. Cities don’t know what to do with the excess licenses – no one wants them.

Fares too are set by city councils. Taxi unions argue that Italian fares are among the lowest in Europe – a taxi ride in Rome starts at €2.80 ($3.68), Turin at €3.50 ($4.59) – especially when compared to cities where the industry was deregulated, such as Stockholm, Sweden (€5.08, or $6.67); and Geneva (€5.22, or $6.85).

“Italy would suffer the same fate as the countries where liberalization was approved: price increases, low quality of the service, and poor labor conditions,” said UN.I.CA leader Maggiolo.

Confartigianato Taxi union vice president Alessandro Nordio says the only way to lower fares is to reduce operating costs. Cab drivers have asked the government to consider tax breaks and subsidies like the ones they give to public transportation. Taxi drivers pay gasoline’s full price, which recently hit a record of €6.90 ($9.05) per gallon.

The problem goes beyond the industry

Some argue that the taxi industry struggles because Italy’s car-centric society has little need for taxis. The country has nearly 61 privately owned vehicles for every 100 people, according to the Italian Automobile Club.

It’s no surprise that only two of every 100 residents use taxis, says Christian Iaione, a professor of institutional communication at LUISS Guido Carli University in Rome. According to the Association of Artisans and Small Business Mestre CGIA, while Italians spend an average of €48 ($63) a year on cab services, their biggest expense is fuel: €897 ($1,177) a year.

What the country needs to be talking about is alternatives to privately owned vehicles, which clog up the narrow streets of Italian city centers and require inefficient traffic restrictions, and improvements to public transportation, Mr. Iaione says.

Monti’s administration has vowed to move forward with the “Grow Italy” proposal, regardless of its unpopularity and obstacles thrown up by key political parties.

According to the version approved by the senate, the newly created National Transport Authority will monitor the taxi industry, but the number of licenses awarded will remain up to the city councils. The lower house has yet to discuss and vote on the proposal, the last step before signing it into law.

Davide Avanzi, president of URItaxi Piedmont’s union chapter, said his union would embrace the senate’s version, even though it does not answer their demands and drivers remain concerned about the impact of liberalization. “There is no powerful lobby behind us as the consumer associations say, we are just defending our jobs,” Mr. Avanzi said.

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